Please Pass the October Surprise

I've always believed that mastery of vocabulary is at least halfway to mastery of the subject. Words are power--the kind of power commonly wielded by eggheads with pocket protectors, but power nonetheless. In the past weeks and months, I've seen a lot of new vocabulary thrown around in the media, and most of us are too busy ducking and diving out of the way to ask what all these crazy words mean. So let's demystify the language of the new economics, right here, right now. Here's a list of common terms you might encounter in your newspaper, on television, or even in a blog.

Commercial paper: This is an IOU, good for maybe a month or two. Unlike a regular IOU, it's written for very large amounts, and companies accept them from each other pretty much without question. Apparently, commercial paper is the way that many companies meet payroll and buy inventory. I always thought they used money. Who knew?

Credit default swap: Halfway between an insurance policy and a racetrack wager, this is a way that mortgage lenders made themselves feel safe giving loans to people about whom they otherwise knew nothing. No job? No documentation? No problem. We have a credit default swap.

Subprime debacle: The inevitable outcome of widespread use of credit default swaps to back sketchy loans. The word 'debacle' has somewhat of a Victorian ring to my ear. It sounds like something that might happen in “The Importance of Being Earnest.” This is how the whole mess was described earlier this year, when we were all in an enviable state of denial. Notably, a 'debacle' is nothing that ever happens to oneself. It always happens to other people. Like the time our neighbors, a husband and wife, met each other driving separate cars in opposite directions on our street, and proceeded to have a very loud argument between the two cars. Boy, was that ever a debacle. So glad I wasn't involved!

Liquidity crisis: Until recently, I would have told you that a liquidity crisis is what happened when my sixty-pound puppy wasn't put outside often enough. But apparently, 'liquidity crisis' is actually what happens when you can't borrow enough money to keep going. Next time your buddy asks you for $100, just until next payday, you'll know he's having a liquidity crisis. Let's just hope that his employer is not relying on commercial paper to make payroll, or his liquidity crisis will become yours. Which, when I think about it, is the essential circular nature of this whole mess.

Tranch: This is a silly, made-up word that big investor types use to explain why they can't look closely at the history of individual mortgages bought and sold by their companies. See, it's in a “tranch.” It's meant to evoke bundles, or “bunches,” which are sort of shrink-wrapped so you can't open them up and look in side. Someone once suggested calling them “faggots,” but that idea was quickly shouted down.

Toxic assets: Imagine that pirates Larry and Lunt from Jonah, the Veggie Tales movie, had successfully invested their prize money from the Mr. Twisty's Twisted Cheese Curls Sweepstakes in cheese curls, as they wished to do. And suppose that after they bought those cheese curls, but before they had a chance to resell them at a profit, they learned that the cheese curls had been manufactured in China (not Nineveh), and that they had high levels of melamine...

Mortgage meltdown: This is the same as subprime debacle, but a bit later in history, when everyone is feeling that it is not so funny anymore. It's like those neighbors shouting in the street are suddenly in your living room, and their car is parked in your driveway, and their trunk is full of those toxic cheese curls, and it turns out they are radioactive, not toxic, and they are going into nuclear meltdown!

Irrational despair: This is one half of a very small set of emotions which Wall Street stock traders are capable of (the other being irrational exuberance). Their severely limited emotional range literally controls our economy, while regulators feebly scold them from afar.

Economic collapse: In physics, there is conservation of matter and energy. Sadly, there is no law of conservation of money in economics. Money can simply disappear, and if enough of it does so, you have economic collapse.

Iceland: A small country in the extreme north populated by the descendants of Vikings which has recently experienced economic collapse (see above). If not rescued by other nations of the world, Iceland will have no choice but to replenish its coffers by raiding the coastlines of Europe and America. Guys with names like Sven and Eric Ericson, with Swedish Chef accents, will be burning our houses and raping our women. Also, they will be sending millions of emails that read, “Dear Friend, We would like to offer you a unique business opportunity...” (with Swedish Chef accents).

October surprise: As if having toilet paper in your trees and rotten pumpkins smashed in your driveway were not enough of a surprise, the October surprise is lore believed by stockbrokers and other Wall Street types (see 'Irrational despair,' above). Apparently, people who work in the New York Stock Exchange are among the most superstitious people on Earth. To a man, they take vacations each year in Ireland to hunt leprechauns, and can be found any time clutching rabbits feet, voodoo charms, saints medallions, and all manner of good luck items. Apparently, these denizens of the trading floor believe bad things happen in October, and in the way of many such prophecies, it happens to frequently be self-fulfilling.

So that, in a nutshell, is the lingo. Know it, understand it, use it wisely. And yet, one thing is still missing. We still don't have a comprehensive phrase to describe the whole phenomenon. I submitted my entry, “The Great Economic Shitstorm of 2008,” to Ben Bernanke, but I haven't received a response from him yet.

Disclaimer: The links and mentions on this site may be affiliate links. But they do not affect the actual opinions and recommendations of the authors.

Wise Bread is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.

Michelle #1

Tranche means something like "slice" in French, as in "piece of carrot cake" or "slice of life." So it comes from the way these mortgages are sliced and diced and recombined into different packages until it's quite difficult to trace them back, like trying to tell which molecules in your house were ones breathed by Newton.

Huh. I'm more familiar with "October Suprise" meaning some political stunt pulled in late October with the intention being to influence the election at the last minute before an opponent has an opportunity to respond.

I feel like I can listen to the talking heads on TV and know what they are talking about now. Thanks for an excellent post to help us non-financial types understand a little more what is going on. Keep up the good work!

This version of the credit default swap isn't what I understood it to mean, based on one of the latest episodes of "This American Life" (#365 Another Frightening Show About the Economy"). I thought it was more like the racetrack wager made by outside entities AGAINST the mortgage holders.

I bet that in the current extremely volatile markets due to the credit crisis and worsening real estate markets, many do not find the answers to their questions about personal finance. This glossary will help you to understand some of the issues but our Wealth Manager allows the users to simulate an infinite number of scenarios, discovering the impact of various factors such as buying a property, inflation or even sending kids to university on your personal finance.

Prosperitypersonal’s Wealth Manager simulates graphically and interactively financial goals. By dragging and dropping icons in the simulation area, visitors can perform various simulations depicting different scenarios customized to their personal situation.